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Extinguishment Of Rentcharges

Volume 932: debated on Friday 20 May 1977

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I beg to move Amendment No. 6, in page 3, line 18, at end insert

'otherwise than by an amount or amounts on a date or dates stated in the instrument'.

We may consider at the same time Amendment No. 13, in Clause 9, page 9, line 8, at end insert

'and in the case of a rentcharge the annual amount of which alters (as provided by the instrument creating it) by fixed amounts on fixed dates, one sixtieth of the total amount payable in respect thereof during the period of 60 years immediately preceding its extinguishment under section 3(1) of this Act'.

I am much obliged to you, Mr. Speaker, for selecting Amendment No. 13 for consideration at the same time, since the two amendments go together.

In Committee, we had considerable discussion about what is described in the Bill as a variable rentcharge. If I understand aright, variable rentcharges may still be created but they are not subject to redemption until they cease to be variable rentcharges.

Let us go back to the beginning, as it were, and consider the purpose of Clause 3. The clause provides that every rentcharge shall be extinguished at the expiry of 60 years beginning with the passing of the Bill or beginning with the date on which the rentcharge first becomes payable. It is that last provision which affects the variable rentcharge in particular, that is, a rentcharge which is not the same sum each year but which may vary with the circumstances described in the instrument creating the rentcharge. It may be a rentcharge which varies according to some event or circumstance which itself may vary from year to year, such as the rateable value of the property. A change in the rentcharge may take place on a death or some other event which cannot be pinpointed as a date in the future.

That is one type of variable rentcharge. I see the extreme difficulty of saying either that that variable rentcharge shall be deemed to start on a particular date while it is still variable or that one can fix the amount of redemption.

However, where the rentcharge varies by specific amounts on specific dates set out in the instrument, we can say that it is in the nature of a fixed rentcharge, and there is no difference in principle between the rentcharge which varies on specified dates and by specified amounts and the rentcharge which is the same amount every year.

In subsection (4), therefore, which lays down that the extinguishment provisions shall not apply to a variable rentcharge, I seek by Amendment No. 6 to exclude therefrom the rentcharge which, although variable, is by the instrument under which it was created payable on specific dates at specific amounts.

The subsection goes on to say that where a rentcharge
"ceases to be variable, subsection (1) above shall apply "—
subsection (1) being the extinguishment provision—
"as if the date on which the rentcharge first became payable were the date on which it ceased to be variable."
At the end of the clause I have introduced my amendment which would make a variable rentcharge payable by fixed amounts on fixed dates a rentcharge which should be extinguished under Clause 3 in the period of 60 years.

I turn now to Amendment No. 13, which would deal with the redemption of a rentcharge of that nature, that is, a rentcharge of fixed amounts which, although they vary, will vary only on fixed dates specified in the instrument creating the rentcharge. Amendment No. 13 applies to Clause 10(1), which sets out what appears to be a rather complicated formula. The Under-Secretary of State for the Environment did splendidly with this in Committee, giving us examples of how the formula would work out and almost producing a sliderule to help us. In fact, however, it is not so terribly complicated. One symbol in it, indicating the amount of the annual rentcharge to be redeemed, is the letter R. That is easy enough to introduce into the formula if it is a fixed sum which does not change annually.

However, since we are here basing our system on extinguishment over a period of 60 years, if the sum is not the same every year, why can we not make a simple addition to the formula, that is, adding up the total payments over the 60 years and dividing by 60, so that, even if the specified amounts vary over that period—starting off at £2 for 10 years, then £4 for the next 10 years and so on—one can tot up the total amount payable over the 60 years and then divide by 60? It seems to me that that would produce the same sort of figure as is produced when the amount is the same each year.

Amendment No. 13, therefore, is designed to introduce into the symbol R the added item where it is not just the fixed annual amount of the rentcharge to be redeemed but the varying amount, provided that the sums are fixed and the dates are fixed. One would then add into the symbol R in the formula one-sixtieth of the total amount payable over the 60 years.

I am not a mathematician. I do not profess to be skilled at these matters, especially when I have to square certain figures, as I have to do in this formula, when I need log tables and the rest. But I have applied what seems to me to be a simple solution to this matter. The serious side of it is that if we say that variable rentcharges of the kind which I have described shall not be subject to the Bill after it becomes an Act, we shall leave a considerable hole through which the Bill can be avoided. I hope that by means of the formula which I have proposed we can close that hole at least partly.

I cannot deal with variable rentcharges where we do not know the dates on which they will vary, the occasions on which they will vary, or even the amounts, but where both the amounts and the dates are known I think that we can introduce this item into the formula and say that such rentcharges shall be extinguished under the redemption formula.

First, I congratulate the right hon. Member for Crosby (Mr. Page) on endeavouring to invent a formula for variable rentcharges. He has found one which could quite simply be added to the formula which we already have in the Bill.

However, I know that the right hon. Gentleman would not wish to see in the Bill any element of confiscation. The purpose of the formula in the Bill is to find a way of ensuring that the rent owner receiving the payment for redemption should have sufficient to give him the same income, broadly speaking, over the perpetual period which would previously have applied.

The Government would not support any move towards confiscation, and I think it right at this point to explain something about the purpose of the Bill which people in the country, especially in Manchester and Bristol, may have misunderstood. What the Bill does is to prevent the creation of rentcharges in the vast majority of cases, to simplify the apportionment and redemption system, and to cut out some of the charges in that. It does not immediately abolish all rentcharges.

Therefore, before there is any dancing in the streets of Bristol and Manchester, I want that to be clear. There may well have been dancing in the streets of Bristol last night, and there may well be dancing in the streets of Manchester tomorrow night, but the connection will be with football rather than with the Rentcharges Bill.

The Minister must not be so partisan as all that. The dancing will be in the streets of Liverpool tomorrow night.

12 noon.

As the Member for Manchester, Gorton I was modest enough to say that there may be dancing in the streets of Manchester, and I could lose a lot on that, too.

These questions of variable rentcharges were dealt with at great length in Committee and I spoke in particular about the possibility of extinguishing them. But any automatic extinguishment of a rentcharge, even one which rises by fixed amounts on fixed dates, carries with it an element of confiscation which the rent owner cannot provide against with the redemption fee he receives. In particular, any rises in the rentcharge, which would take effect under the instrument creating it, after the end of the 60-year extinguishment period would not be catered for by the formula, and the rent owner could not be expected to set aside out of the annual payments he receives during the 60 years an investment to provide an equivalent rising income after the rentcharge is extinguished. That is precisely what I know the right hon. Gentleman does not want to see. In Committee I dealt with the matter at length, and it is referred to in columns 89 and 90 of the Official Report of the Committee proceedings.

The reasons for not accepting the amendment to Clause 10 are similar. In effect the amendment requires that in the case of this sort of variable rentcharge the figure to be used as the annual amount of the rentcharge is to be the average of the annual amounts payable over the 60-year extinguishment period.

Again, this formula takes no account of any rises which would take place after the end of the 60 years. The amount of the redemption price would on this formula be an artificial figure based on the lower amount of rentcharge payable it its early years and would not provide a fund capable of bringing in a sum equivalent to the higher rent due in later years after redemption.

There is a further reason for not accepting the proposd formula in that it would not work similarly in all cases. The result would depend to a large extent on the amounts of rises in the rentcharge and the intervals at which they should take place. The redemption price arrived at to provide a similar substitute income could vary widely from case to case, even when it is a fixed charge, and that is why we are unable to accept the amendments.

I am disappointed with my hon. Friend's reply. In Committee it seemed that we faced two problems. First, there was the question of how to avoid expropriation, although many Members in Committee were prepared to see a small amount of that. Secondly, the problem was to produce a formula. The challenge was issued for someone to do so. If the right hon. Member for Crosby (Mr. Page) can produce a formula in about 15 days, surely a Government Department could by now have produced a formula to cover the point.

If the right hon. Gentleman is happy that his formula does not involve too much expropriation, it seems that that would be accepted by the House as being a fair amount. I hope that in rejecting the amendment the Government will not shut their eyes completely to this problem of variable rent charges and that between now and when the Bill comes up for Third Reading in another place they will have further thoughts to see whether they can produce a solution to the problem.

I appreciate that one must consider whether any formula will be a formula of confiscation or expropriation of some right in property which is held by the rent owner. But when one gets beyond the 60 years, even though the instrument creating the rentcharge may provide for rises, those rises will be of a pretty low value.

At the bottom of page 19 in paragraph 58 of its report the Law Commission considers the figures required to be put aside out of the rentcharge each year in order to have a sum at the end of the 60 years which, when invested, will bring in the same as the rentcharge has brought in over the previous 60 years. It is shown that the amounts go down substantially throughout the years. By the time the sixtieth year is reached the figures are very small.

Therefore, the value of a rentcharge after the 60 years is not very great. This was the sort of thing that was recognised in dealing with leasehold reform, and the redemption of rentcharges appears to be very similar to leasehold reform. I agree that a formula which just adds up the total amount payable over 60 years and divides it by 60 is rather rough and ready justice. But I do not think that one would find a very great injustice to the rent owner who is obliged to accept redemption on that basis.

I may have been careless in something I said in moving the amendment when I spoke about the creation of variable rentcharges in future. I think I am right in saying that these are not excepted in any way. They may be excepted from extinguishment—I see the Under-Secretary nodding and therefore I hope that I am right—but I assume that it will not be possible to create them in the future. If I am right, that is a bit more relief to me in moving the amendment since I am dealing only with existing rentcharges.

I imagine that the Department of the Environment has some good idea how many variable rentcharges there are, certainly of the fixed variety. They will have been created perhaps, in the case of building sales for development purposes, but I do not think that many have been created. We know that rentcharges and chief rents of this sort exist only in certain parts of the country. I think that we could get a good idea of how many of these there are and to what extent there would be injustice.

This Bill has another stage to pass through in another place. I hope that the Department will not throw in the sponge over a formula for variable rentcharges and that some suitable formula will be found, even if the one which I have proposed is rather rough and ready. Perhaps the Department could smooth off the rough edges and come up with a reasonable solution. We should try to dispose of these fixed-date, fixed-amount variable rentcharges.

Perhaps I may reply briefly to the debate. On the point raised by my hon. Friend the Member for Stockport, North (Mr. Bennett), there is an argument for expropriation and I know that many people who pay chief rents in his area and mine would, whatever their political leanings, vote for expropriation. However, that is not what the Law Commission suggested or what is proposed in his Bill. We want as far as possible to provide justice in this matter.

Often a Bill may give rough justice, but we have gone as far as we can to be fair to the rent owners. In the case of variable rentcharges, what the right hon. Gentleman for Crosby (Mr. Page) said about amounts reducing towards the 60th year does not apply.

Frankly, I do not think we have any idea how many variable rentcharges there are. The right hon. Gentleman suggested that I should not throw in the sponge at an early date, and I do not propose to do so on this amendment.

Amendment negatived.